Can Petroleum Fund after the Norwegian model be the solution to resource curse in oil-rich developing countries? : A neoclassical look at the Angolan post-war economy

Authorities in oil rich developing countries are often advised to save part of their oil tax revenues in natural resource funds. One rational for such funds is to reduce the volatility in government spending due to the stochastic nature of oil production and oil prices. A second rational for such funds is equal distribution of oil benefits across generations. Norway is often referred to as a good example in management of oil revenues. The country follows a policy rule that guides the spending from the Petroleum Fund established over 10 years ago. Only the expected returns are annually consumed. The classical view from Solow and Hartwick is that current generations should not avoid shortcoming the needs of future generations. Revenues from exhaustible resources should not be over consumed by the current generation but should be invested in physical (or financial assets), that yield returns for an infinite number of generations. Thus the consumption is maintained constant along a balanced growth path. From a de-trended long run growth perspective, the oil revenues are equally valued by infinite number of generations. The Norwegian Petroleum Fund and the related policy function (“handlingsregelen”) are set to achieve intergenerational equity. With a look at the Angolan post-war economy, this thesis questions whether there is a neoclassical rational for a poor country to adopt the Norwegian model. While one might be apologetic for such imitation simply on general political and institutional grounds, it seems to be difficult to find a clear rational from a pure neoclassical economic point of view that supports such recommendations. As it will be shown, the main reason is that most poor countries are not along a balanced growth path. A model similar to the Norwegian Oil Fund and the related decision rule “Handlingsregelen” will have different intergenerational implications if applied to economies outside the balanced growth path